James McGovern is an industry thought leader whose focus is on the human aspects of technology around open source, SOA, software security, enterprise architecture and agile software development.

The opinions expressed herein may or may not represent my own personal opinions and definitively do not represent my employer's view in any way...

Monday, November 22, 2010

Enterprise Architecture: Stop Outsourcing, Start Open Sourcing...

In 2003, at the industry's first enterprise architecture conference, I stood on stage proclaiming that enterprises should avoid outsourcing and instead concentrate on open sourcing. Let me share some rationale as to how this benefits the enterprise...

In the United States, there are hundreds of Property and Casualty insurance companies, all who are pursuing outsourcing redundant work to destinations such as India, Sri Lanka and Trinidad. Enterprises using this model, have gotten limited savings by taking advantage of rate arbitrage (difference in salaries of workers) but otherwise haven't unlocked sustainable savings.

Within the insurance ecosystem, every single insurance carrier has at least one policy administration system. These systems cost a lot of money to purchase and maintain, yet provide zero competitive advantage. Since much of the insurance industry is regulated, many carriers are paying hundreds if not thousands of people in an outsourcing context to do the same work across companies in order to comply with regulatory compliance.

The possibility in eliminating waste by figuring out ways that the work could be done one time and shared across the industry still continues to be unexplored. What if carriers made their non-competitive systems open source such that they could retain US jobs and share across company boundaries over outsourcing redundant work?

As the United States unwinds from a fiscal crisis and bailing out the insurance industry, with the largest bailout being AIG, did the federal government explore all possibilities in unlocking value?

There are many challenges that would need to be overcome. I can envision the challenge of enterprises suffering from the lack of having a software vendor spoonfeeding them information and instead requiring them to step up and understand for themselves as the first impediment. We can also count on the fact that many industry analyst firms either are incapable of covering this type of activity and would not align with magic quadrant thinking.

I can also see the challenge of executives not understanding that competitive advantage in this scenario as CIO would need to revisit thinking around championing functionality that favors their business over functionality that benefits the entire ecosystem equally, but does that mean we should leave money on the table...